New semiconductor policy likely

The PMO wants incentives restricted to 25% of total capex.

The semiconductor policy proposed by the department of information technology (DIT) is set to be re-worked, with the Prime Minister's Office directing that incentives under it be restricted to 25 per cent of the total capital expenditure.

The directive issued by the PMO is being seen as an effort to resolve differences between the DIT and the finance ministry on the issue.

According to the DIT proposal, the incentive package works out to around 50 per cent of the project cost. North Block, on the other hand, holds that either no incentives should be given or at best be limited to 15 per cent of the project cost, on a par with the sops given by Israel.

According to the revenue department, the cost of incentives proposed by the finance ministry works out to 23 per cent of the capital expenditure if the investment period for the policy is five years, and 18 per cent for an implementation period of 15 years.

The DIT had earlier sought equity infusion of up to 26 per cent of the project cost. It had also sought a loan of Rs 100 crore at zero interest for five years, and Rs 400 crore if the project cost exceeded Rs 4,000 crore.

In response, the revenue department had pointed out that an upfront equity participation of 26 per cent would have a financial implication of around Rs 1,100 crore.

Some of the other general incentives such as zero interest loans of up to Rs 400 crore up to five years upfront would cost Rs 200 crore, while an interest subsidy of 50 per cent for 10 years would cost another Rs 250 crore.

Similarly, 100 per cent income tax exemption for 10 years, coupled with exemption on profits ploughed back for the next five years, would have an implication of Rs 17,500 crore. Excise duty reductions would cost Rs 9,000 crore.